Inventory Management Motives
Managing inventories involve lack of funds and inventory holding costs. Maintenance of inventory is expensive, then why should firms hold inventories? There are three general Inventory Management Motives for holding inventories:
1. Transaction Inventory Management Motives : Transaction motive includes the production of goods and sale of goods. Transaction motive facilitates uninterrupted production and delivery of an order at a given time (right time).
2. Precautionary Inventory Management Motives : This motive necessitates the holding of inventories for unexpected changes in demand and supply factors.
3. Speculative Inventory Management Motives : This compels to hold some inventories to take the advantage of changes in prices and getting quantity discounts.
Need for Balanced Investment in Inventory